Although governments in Africa are embarking on comprehensive economic reforms intended to create an environment that is friendly to private enterprise, more action is required to attract more domestic and foreign investments if faster economic development is to be achieved. Areas that require urgent attention include the following.
The formulation of an appropriate policy framework for effective resource mobilization in Africa must begin with an assessment of the role that the financial sector has played in the region’s economy, and the shortcomings that it may have faced in mobilizing the necessary resources for investment. In the contemporary African context, efficient functioning of the financial sector takes on added significance for at least three reasons. First, if the region is to emerge from the economic crisis of the last decade and a half, the financial sector must contribute to the recovery through the enhancement of the savings-investment process. Second, the widespread economic liberalization programs that have swept across Africa put greater reliance on the private sector, which clearly requires efficient institutions to meet its financing requirements. And third, increasing competitiveness in the global economy requires that the financial system be efficient and flexible enough to support the region’s external economic relations.
Over the three years since the crisis broke out in 1997, the five Asian countries—Indonesia, Korea, Thailand, Malaysia, and Philippines—managed impressive recoveries. The recoveries were faster than expected by anyone. The economies started to bottom out in the second half of 1998. The rebound of growth in 1999 was no less drastic than its free-fall. In Korea, for example, the growth rates showed a turnaround from −6.7 percent in 1998 to 10.7 percent in 1999.
Rodrigo Valdés is a professor at the School of Government of Pontificia Universidad Católica de Chile, and he is a board member to several firms. He was Minister of Finance of Chile between 2015–17, and president of BancoEstado immediately prior to his post at the ministry. In the past he worked in the private and public sectors, in BTG Pactual in Santiago, Barclays Capital in New York, at the International Monetary Fund, and at the Central Bank of Chile. Mr. Valdés has a PhD in economics from the MIT and a degree in business administration from the Universidad de Chile.
A developed fiscal framework is based on several fiscal institutions that contribute to fiscal and macroeconomic performance: a formal process of government budget planning, congressional discussion and approval, execution, and accountability; fiscal rules; sovereign wealth funds; and fiscal councils.
Eradication of absolute poverty was the overarching objective of policymakers in most of the developing countries that achieved political independence after the Second World War. They were determined to correct the perceived failures of colonial rule by embarking on a structural transformation of their economies and societies. It should surprise no one that—given the abject poverty of their populations and the then-prevailing low life expectancy at birth; high rates of mortality (particularly infant and child mortality), illiteracy, and malnourishment; and lack of educational and health-care facilities—they viewed poverty as a multifaceted phenomenon and not just a reflection of inadequacy of incomes. A few among them also viewed the absence of participatory democracy as an aspect of poverty. All of them recognized that, given the low level of average income, redistributive policies at best have a limited role (and at worst are counterproductive) in eradicating poverty. They were therefore emphatic about the instrumental roles of rapid growth in income and its better distribution for achieving the objective of poverty eradication.